Bressler Risk Blog

“Court of Appeals Reverses Professional Negligence Sanctions Against Scrudder Bass” —

• “The Georgia Court of Appeals recently overturned half a million dollars in professional negligence sanctions against law firm Scrudder Bass Quillian Horlock Lazarus & Adele.”
• “Doing so, the court found a DeKalb County trial court abused its discretion by issuing the penalty and addressing a firm’s duty of confidentiality when a conflict is discovered which requires the firm’s immediate withdrawal from the case.”
• “Four years later, at the outset of the trial, Scrudder Bass told the court it just became aware of a conflict of interest and would need to withdraw because it could no longer represent all three clients. When asked when it became aware of the conflict, the firm said it would have arisen years ago, but the information it received that morning was ‘brand new’ and it had only just begun investigating its legal and ethical obligations.”
• “The trial court scheduled a hearing on Scrudder Bass’ emergency motion to withdraw, but the firm instead asked for an in-camera revue because it couldn’t publicly disclose the basis for the conflict because of client confidentiality.”
• “The judge, however, refused to grant an in-camera review and instead declared a mistrial and ordered the defense to pay a half-million dollars in sanctions, reasoning that the plaintiffs would have to completely redo their work in preparation for a new trial and Scrudder Bass should have been aware of the potential conflict when it came on as counsel because Green testified she wasn’t sure where the work order entries in question came from the year before. The order also noted that the disclosure of conflict itself wasn’t improper, but rather the timing of the disclosure because it unnecessarily expanded the proceedings.”
• “The unanimous opinion, authored by Presiding Judge Stephen Dillard, reasoned that the firm did the right thing by withdrawing, and even if it had known about the conflict of interest before such a late stage in the proceedings, withdrawing wasn’t a severe enough offense to warrant so much sanctions—though he said his analysis might be different if the evidence showed the firm purposefully waited until the last possible minute.”
• “He cited the trial court’s refusal of an in-camera review as a second error. ‘doing so, the trial court erred in suggesting that it could not hear such evidence without risking disqualification,’ Dillard explained.”
• “At oral argument, many of Dillard’s questions focused on this decision to not grant in-camera review and indicated some skepticism toward whether the trial court judge was correct in refusing it. Dillard asked the defendant-appellants if the judge was fully aware of the details of the conflict and, had he considered those details, could have led him to make a different decision. Judge Trenton Brown noted that the plaintiff-appellants said there was a thorough hearing after Jacobs denied in camera review, and whether after that hearing, in camera review would have been beneficial.”
• Decision here.

“Solicitor’s reprimand challenge backfires with tougher penalty for acting in conflict” —

• “The founder of an NSW boutique firm was hit with a harsher penalty after appealing the reprimand she received for acting in conflict by representing both a longstanding client and her family members.”
• “Maria Di Giovanni, a founder of Iron Cove Law in Drummoyne, was ordered to complete an ethics course and issue an apology to a client she had known for a decade and had formed a relationship with that was “closer to friendship” than solicitor-client.”
• “In May 2023, the Council of the Law Society of NSW found Di Giovanni engaged in unsatisfactory professional conduct by advising both the client and her family members in a commercial property conveyance of a multimillion-dollar property in Sydney.”
• “The council originally imposed a reprimand and ordered that she undertake an ethics course, which, ‘to her credit,’ Di Giovanni completed despite challenging the findings simultaneously.”
• “This month, NSW Civil and Administrative Tribunal (NCAT) principal member Aaron Suthers and senior member Michelle Sindler said Di Giovanni’s conduct in the appeal ‘indicates that she has not learnt from the course in respect of having gained an understanding of the fundamental complications of acting for both parties.'”
• “Given Di Giovanni’s evidence that conveyancing forms ‘a considerable part of her practice,’ she was ordered to complete a further course on informed consent and how conflicts arise.”
• “The tribunal was told that by the time of the conveyancing, the client was struggling with regulatory compliance issues from owning a commercial property in a superannuation fund – which Di Giovanni also acted for – and this was ‘exacerbated’ by his wife’s death.”
• “The client had asked Di Giovanni to assist with selling the property but, when he changed his mind, Di Giovanni discussed the potential advantages of a private sale and advised him ‘certain members of her family … may have an interest in purchasing it.'”
• “After the contract was executed, Di Giovanni wrote to her family members about the potential dangers of acting for both parties and advised them the firm would cease acting if this became an issue. She did not issue this same advice to the client at that time.”
• “When the client said he wanted to resile from the contract, Di Giovanni did not cease acting. Instead, she attempted to negotiate mutual rescission, with the client’s company to pay the family member’s reasonably incurred costs. NCAT said this did not work.”
• “It was then that Di Giovanni told the client it ‘may be prudent for you to obtain independent legal advice.'”
• “The client alleged in a letter to the Law Society that he ‘felt like the property had been stolen from under my nose by my solicitor and sold to her relatives for the same price I paid for it two years earlier.'”

“Wood-Pellet Maker’s Bankruptcy Lawyers Ousted Over Conflict of Interest” —

• “Law firm Vinson & Elkins can’t represent Enviva because its largest shareholder is also a client, bankruptcy judge says”
• “A bankruptcy judge rejected a law firm’s application to represent wood-pellet maker Enviva while it works for its largest shareholder Riverstone, saying the firm’s work for the private-equity backer amounts to a conflict of interest.”
• “Vinson & Elkins can’t represent Enviva while negotiating against Riverstone, another client of the law firm that accounted for 1.4% of its revenue collections in the last fiscal year, said Judge Brian Kenney of the U.S. Bankruptcy Court in Alexandria, Va. He said the law firm’s relationship with Riverstone violates the core principle of bankruptcy law that companies only employ professionals who are “disinterested” parties.”

“MEMORANDUM OPINION AND ORDER DENYING DEBTORS’ APPLICATION TO EMPLOY VINSON & ELKINS L.L.P.” —

• “On April 3, 2024, the Court entered an Order Continuing the Hearing on the V&E Application, noting that V&E had disclosed: (a) that it represents certain Officers and Directors of the Debtors in shareholder and derivative litigation; and (b) that it represents the Riverstone entities, which are equity security holders in the Debtors (discussed below). Docket No. 224. See also Docket No. 183, Meyer Decl. pp. 9-11. The Court further noted that V&E had not discussed any ethical walls in its Application. Docket No. 224.”
• “Mr. Meyer disclosed in his first Supplemental Declaration that V&E represents certain members of the Ad Hoc Group in unrelated matters… Specifically, V&E represents Ares Management, LLC, Morgan Stanley & Co., LLC, Oaktree Capital Management, LP, and Monarch Alternative Capital LP.”
• “The U.S. Trustee asserts that V&E failed to disclose its connection with Oaktree, and that the U.S. Trustee discovered this connection on its own.”
• “The Monarch representation is notable because it began in April 2024, after V&E filed the Petitions in this case on behalf of the Debtors.”
• “V&E represents several of the Debtors’ Officers and Directors in shareholder and derivative litigation.”
• “The U.S. Trustee argues that V&E’s representation of the Officers and Directors represents a conflict because the Ad Hoc Group RSA provides that the Debtors’ management will receive 3.5% of the equity in the reorganized entities, and additional warrants to purchase equity in the reorganized entities.”
• “The first Meyer Declaration disclosed that Riverstone Investment Group, LLC, and its affiliates (collectively ‘Riverstone’), are current clients of V&E.”
• “Riverstone and its affiliates collectively own 43% of the common equity ofEnviva, Inc.”
• “Two members of Enviva’s 13-member board are affiliated with Riverstone.”
• “V&E currently represents Riverstone in matters unrelated to this case.”
• “There are no ethical walls erected at V&E concerning its simultaneous representation of Enviva and Riverstone… In fact, there are attorneys at V&E who currently represent both Enviva and Riverstone, thereby making any ethical walls impossible.”

“Recycler attorney disqualification stands” —

• “A pair of attorneys who had represented two competing metal recyclers will remain disqualified from representing one in an ongoing dispute between the companies.”
• “Northern Metals last year sued competitor Crow Wing Recycling and the Minnesota Pollution Control Agency (MPCA), claiming violations of the Minnesota Environmental Rights Act and the public-trust doctrine. The complaint alleged that Crow Wing Recycling was releasing pollutants into the environment without proper permitting and pollution controls in place and that the MPCA didn’t take sufficient action.”
• “Crow Wing hired three attorneys from Taft Stettinius & Hollister to represent it in the suit: Jack Y. Perry, Jason R. Asmus and Brayanna J. Smith. Perry and Asmus had previously represented Northern Metals on behalf of a firm that was later acquired by Taft.”
• “Northern Metals notified Crow Wing Recycling that it did not consent to its counsel arrangement and asked its lawyers in the case to withdraw. When they declined to do so, Northern Metals moved to disqualify counsel under Minnesota Rules of Professional Conduct 1.9 and 1.10, which spell out duties owed by attorneys to former clients. After a hearing, Ramsey County District Court granted the motion and disqualified counsel from representing Crow Wing Recycling in the matter. Crow Wing appealed the disqualification order.”
• “Crow Wing’s answer to Northern Metals’ complaint identified the attorneys it was using in the matter. When it later moved to disqualify counsel from representing Crow Wing, Northern Metals asserted that two of its competitors’ attorneys had previously represented Northern Metals ‘on substantially related issues’ from 2012 to 2016, during which time counsel ‘obtained confidential information as part of the prior representation that has neither become public since then nor rendered obsolete over the passage of time.'”
• “Northern Metals further claimed that there was factual and legal overlap between counsel’s former representation of Northern Metals and the later matter. In support of the motion to disqualify, Northern Metals submitted the affidavit of an attorney expert, who opined that counsel was disqualified due to a conflict of interest.”
• “After a hearing on Northern Metals’ motion to disqualify counsel, the district court granted the motion in a written order. The court concluded that there was significant overlap, indicating a substantial relationship, between the two Taft attorneys’ former representation and the facts alleged in two of the three counts in the motion. Crow Wing and its counsel appealed the order.”
• “The Minnesota Court of Appeals affirmed the lower court decision in an unpublished opinion.”
• “Citing a number of disputes with the appellate court’s findings, Perry said Taft is likely to petition the Minnesota Supreme Court to review the case.”
• “‘One thing we’re concerned about is whether the district court has subject-matter jurisdiction on the issue of disqualification,’ Perry said. ‘We take our ethics seriously, and disqualification motions are a very big deal. The district court did not have the authority to rule on that issue.'”

“No Disqualification Under Lawyer As Witness Rule” —

• “The Delaware Court of Chancery has denied a disqualification motion:”
  • “Brex seeks to disqualify Su’s trial counsel under Rule 3.7(a) of the Delaware Lawyers’ Rules of Professional Conduct (the “DLRPC”). That rule states that “[a] lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless . . . disqualification of the lawyer would work substantial hardship on the client.” Because Su’s lawyer is not likely to be a necessary witness, Rule 3.7(a) does not require disqualification.”
  • “Patterson has represented Su in this litigation since it was filed in August 2022. He was admitted pro hac vice on September of 2022. On July 21, 2023, Brex raised its belief that Patterson was ‘a material witness in this case.'”
    “Patterson was undeterred, and continued to serve as Su’s lead counsel. Brex sought to depose Patterson, and Su resisted; addressing Brex’s motion to compel, the special discovery master in this case concluded Patterson’s knowledge about his communications with Su warranted a limited deposition. No party took exception. At his deposition, Patterson testified that he does not remember the May 2022 call with Marsh, and that if he did say he spoke to Su three to four months before the call, he ‘was wrong.'”
  • “Su does not intend to call Patterson in his case-in-chief. Brex intends to call Patterson in its case-in-chief to bolster evidence that Patterson told Marsh that Patterson spoke with Su during the due diligence period, which Brex claims goes to whether Su was terminated for cause. Certainly, the reasons why Brex’s board terminated Su are central to this case. But Patterson’s testimony is cumulative of and peripheral to Marsh’s: Marsh shared his own impression with the board. Patterson’s testimony is further peripheral to the issue of what the board did with Marsh’s impression. And Patterson’s testimony that he does not remember the call, and if he said he spoke to Su during that period he was wrong, does nothing to bolster the conflict between Marsh’s and Su’s testimony.”
  • “Brex also intends to call Patterson to demonstrate that in this litigation, he contradicted his statement to Marsh. Patterson has not done that: he testified he does not remember the call, and that if he said he spoke to Su in that time period he was wrong. And the argument that someone is a necessary witness because they can be impeached presupposes that his testimony is necessary. As explained, it is not.”
  • “Brex also intends to call Patterson to demonstrate the board investigation Su is attacking as inadequate was deficient because Patterson gave Marsh “wrong” information. This is a peripheral rebuttal argument, not a central case-in-chief argument.”
  • “I cannot conclude that Patterson is likely to be a necessary witness under DLRCP 3.7(a) at trial.”

“The Law Firm Disrupted: When Private Equity and Mass Torts Collide in the Same Firm” —

• “Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client. Such tensions may grow even more common as multistrategy investors look for new opportunities.”
• “Last Friday, Skadden product liability partner Allison Brown, representing Johnson & Johnson, penned a letter to a U.S. magistrate judge, seeking a subpoena against plaintiffs firm Beasley Allen, which is representing clients in a mass tort over the company’s baby powder.”
• “All in a week’s work for a global law firm with over 1,600 attorneys, right? But there’s an added wrinkle here. Beasley Allen has a litigation funding arrangement with Fortress, and Brown indicated in a footnote that the investment shop should also be looking out for a subpoena.”
• “In other words, Skadden served as deal counsel for an investment giant that’s also funding claims against a firm client.”
• “There’s no indication that representing an investment shop in a deal involving one of its portfolio companies (or as it’s acquired by a larger player, as in the case of Skadden and Fortress) presents an ethical conflict when other attorneys at the firm are representing a client who’s facing off against an adversary backed by that same investment shop.”
• “As one partner at an Am Law 100 firm who does work on behalf of third-party funders told me, the firm takes the position that this representation is not directly adverse to that on behalf of another firm client, legally.”
• “Other firms, particularly those with strong relationships with the tech industry, can be more unyielding. These tech clients’ position as a frequent target of funders’ claims makes certain firms unwilling to take on any work on behalf of funders.”
• “But there are optics considerations to take into account. When the partner, who sought anonymity to speak about firm policies, does take on one of these representations, they look to see who the defendants are, and then runs it by the firm.”
• “‘If it came out, would it be a problem?’ the partner said. ‘What are the chances of it being disclosed, and what kind of relationship issue would it raise?'”
• “Similarly, Parikh raised concerns about ‘bad optics’ surrounding these overlapping ties, while also recognizing that sophisticated firms like Skadden maintain ‘very particular and focused engagement letters’ with all of their clients to ward off conflict issues.”
• “Indeed, akin to a global law firm home to hundreds of partners pursuing a range of different work on behalf of a diverse client base, investment firms like Fortress are also sprawling, disjointed entities.”
• “‘We consider a lot of large investment firms as a monolith, but they have all these different arms, and they are all operating somewhat independently,’ Parikh said. ‘To the extent there are some tensions here, it’s on both sides of the fence.'”
• “And with mass tort claims presenting a ripe opportunity for private equity investment, expect to see more examples of tension.”